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MND NewsWire features plain and simple interpretations of industry related data and events written in a manner that maintains the interest of random readers while still catering to the perspective of a housing market professional.

An otherwise very smart real estate attorney once said to a friend "Nobody
understands dual agency." It seemed like a weird thing for a lawyer to say at
the time but Newsweek has just proven his point.

In a rather remarkable short piece promoting buyer agency
in the "Tip Sheet" portion of the July 15 edition, the magazine made the following
points:

Not all buyer agents are created equal. Most home shoppers use agents from
companies that also list properties and they're likely to steer you to company
listings first. The piece quoted Stephen Brobeck of the Consumer Federation
of America. "It is irreconcilable conflict of interest."

If you can't find an exclusive buyer agent locally, use a selling agent
as a buyer agent but do some screening. Ask about his track record of saving
clients' money, their training in negotiation and property evaluation, and
their loyalty to you. When they suggest homes to visit, ask if they are listed
by their own company. That means that the agent has a bigger incentive for
you to buy it.

What about the fear that listing agents won't want to work with you if they
know they have to split a commission. Listing agents are required to show
your offers to the owners, even it they would rather not. In this slow market
it is not such a big worry.

OK, talk about not understanding agency or even the structure of real estate.
Once again a brief primer on agency.

There are two types of players in listing and selling properties. An agency
is an office (even a one person office) with a managing broker. The agency is
the company of record on either side of a real estate sale; all contracts, including
those with multiple listing, are signed under that agency's name. An agent
is an individual sub-contractor who works under but not for the agency. Agent
and agency should never be confused!

For many years listings were handled under a sub-agency agreement.
A seller hires an agent to manage the sale of his house for which he will pay
a commission. His contract, however, is with the agency to which any commission
will be paid. The listing agency offers some portion of that commission, usually
50 percent, to any agency that produces a buyer and consummates the sale. Thus
they have extended their agency to others who agree to represent their seller.
This is the way real estate sales were handled for generations and is still
the model in some states.

Buyer Agency. In the 1980s consumer groups and buyers began
to realize that everybody had a fiduciary responsibility to the seller and that
no one represented the buyer in most transactions. Even worse, most buyers didn't
realize they were on their own. This was the genesis of buyer agency.

At first agents clung to the old model and buyers sought out exclusive buyer
agents, sometimes paying them a fee, sometimes relying on the agent's
ability to negotiate a share of the commission from the listing agent. These
buyers' agents did not accept listings which lead to all kinds of problems.
First, in order to make a living in this brave new world buyer agents had to
cover large geographic areas and could not possibly have thorough knowledge
of the housing inventory. Second, there was a real adversarial relationship
generated between the exclusive buyers' agent and offices that both listed
and sold properties - a relationship that seemed to be fostered by the
buyer agents to demonstrate a significant value to their clients. This is the
model of buyer agency that Newsweek appeared to be promoting as recently as
last week.

Things have changed significantly in the last 15 years. Many states automatically
require that agents working with buyers represent those buyers although other
models are still in play. Where sub-agency still exists buyer and seller agents
have worked out easy and reciprocal relationships where each side knows its
boundaries and responsibilities. Thus, aside from a few old dinosaurs that will
never get over hating buyer agency, commissions are almost always willingly
split.

Dual Agents/Dual Agency. Here is where Newsweek really fouls
it up. In the first instance, Dual Agent, an agent takes a listing, automatically
becoming the representative of that property and its owner. This is a fiduciary
role and such an agent should not then sell that property to a buyer with whom
he has agreed to act as an agent, another fiduciary situation. He can sell that
property to one of his customers (as opposed to one of his clients) but remember
that no man can serve two masters, an absolute conflict of interest. If it is
a customer he should disclose that he is the listing agent, but this hardly
seems necessary when his name is on the yard sign, the listing sheet, and probably
the newspaper ad. When the situation arises that a buyer client wants to see
or buy the property the agent represents the agent must pass off representation
of one client or the other, probably to the buyer, to another agent in the office
or to the managing broker.

But dual agency is much more arms length. It exists when Joe Jones of Enterprise
Real Estate lists a property owned by the Blacks and Barbara Smith of Enterprise
Real Estate, with a signed buyer representation agreement shows the Browns the
property. Barbara is the representative of the buyers while Joe represents the
seller but they are both independent agents operating under the auspices of
a single agency which does little to control their behavior. This is not the
law office model where one office cannot represent both sides of a suit. Attorney's
are employees of the firm; more typically owners. Real estate agents are merely
parking their licenses.

Where Newsweek really gets it wrong, however, is in suggesting that Barbara
has a vested interest in showing the Browns only those properties listed under
the Enterprise name. There is nothing to prevent Barbara from showing properties
listed by Century 21 or any other office in town and nothing that would encourage
her to show only Enterprise properties. Some offices did offer a small incentive
for selling in-house listings but those with good legal offices stopped this
long ago.

Further, in this era of the Internet it is very easy for the buyer to check
back and determine if appropriate properties are being buried by the buyer broker.

Actually, there is one advantage to being plugged into an office that does
both listing and selling. A buyers agent in a big office usually hears via what
is a well-developed grapevine when good listings are expected to come to market
in that office and every other office in town. This is something the exclusive
buyer agency office will never be able to offer.

At the core, real estate is set up to foster some really ugly competition among
agents in the same office. This is, in fact, among the least collegial of professions.
Top producers are fed the best referrals by management and earn much higher
commission splits than do less successful agents. As independent contractors,
agents are looking to their own commissions not worrying about that of their
offices or other agents in it. To suggest that there is a team spirit that will
promote exclusionary real estate practices is to admit you simply don't
understand the process.

Comments

Never, ever buy from Dual Agents. There's really no such thing as a "arms length" transaction for dual agents.
I saw one dual agent reject full-price offers and accept a 3-month contract offer for $20,000 less because the agent found the buyer, so instead of splitting the commission she got it all. I actually called the sellers and told them what happened and they had no clue why this situation was bad.
it was a major, nationwide company too.

Sandy

on

There are now handfuls of realtors that are also LO's and are double dipping on the loan commissions & getting the full 6% from the sellers too.On a $150,000 sale they could earn up to $16500 if fees are maxed out. They tell the buyer that my rate on the preapproval is too high and that they should let them do the financing to ensure a smooth closing and no lies. Almost everytime I get a call days before close bc things arent what they were supposed to be but then its too late & theyre screwed!

Linda R.E. Broker

on

Dual Agency is when the agent represents two principals in their dealings with each other. When a real estate broker acts as an agent of only the seller or the buyer, this is called a Single Agency. The dual agnecy may be utilitized only if the buyer and seller are both AWARE and approve of the arrangement. If the agent represents both without approval. The agent is guilty of a divided agency.
Calif. real estate law (Business & Professions Code 10176(d)

Mary

on

I am a buyers' agent as well as a listing agent, but rarely in the same transaction. It is very important to me that buyers know I am representing their best interests and motivated to find them the home that best suits their needs. It is short-sighted to be worried about commissions in a transaction because their satisfaction with my services will likely equal referrals in the future. When people are pleased they may not tell anyone...but when they are not they will surely spread the word!

Carol

on

I am a realtor, and I am also a good dual agent. The satisfaction of my clients with the transaction is more important than the amount of the commission that I receive. I concentrate on houses that meet the needs and wants of the buyer, not those listed by me or by the agency that I work for, although, I myself have dealt with some rather unscrupulous agents. I am sure if you're honest, you'll admit that there are some unscrupulous people in most every professional field.

Michael

on

This is one area where the State Laws, and Federal laws are clear. Anyone who is a licensed agent should know better then to attempt to defraud either the buyer or seller. if they are out for their own commission, then they are seriously lacking in their fudiciary responsibility to their client.

Michael

on

I work for a franchise that promotes teamwork within the office - not competition - and in this day and age - you get more with team work and non-competitive atmosphere than you do with being out to win for yourself. It's a dis-service to the Client, the other agent, and both brokerage houses. This is why customers/clients are now selling their homes on their own - they feel we are 'corrupt.

John Freudenberg

on

Greed and political connections have overcome common sense in state real estate commissions allowing dual agency to even exist. It is an abomination and if the public truly understood its nature there would be a huge outcry against it. It is also the prime source of countless lawsuits and the cause of general dislike of agents, professionals that should have much higher standards. Dual agency ensures that clients who are owed fiduciary responsibilities are at best given mediocre treatment.

AJ

on

Most of the above comments are far to broad generalizations. Dual agency is a very useful practice, I have been involved in dozens of dual agency transactions with no problems. The alternative is ridiculousif a buyer affiliates with a good, high producing local RE agent (which makes sense), then by default all of that agents company listings should not be considered by the buyer??? Just to protect them from what??

e. zach lee

on

I liked the suggestion the Newsweek article had about checking the agent's past savings on transactions. The traditional industry claims buyer agents do not save buyers anything however this came up in a court case in Oklahoma where the OK Real Estate Commission fined The Buyer's Agent for advertising savings. The OK Supreme Court ruled The Buyer's Agent did save their buyers money and proved it. For those of you interested in Agency, the OK case is worth a study.

Judith

on

Dual agency has too many temptations for it to work across the board. I know there are many "good" dual agents, but in order to insure that there are NEVER any "bad" dual agents, there need to be laws governing agency to prevent "bad" dual agents from defrauding buyers.

Joan

on

I think that Buyer's Agents and Listing Agents should be totally separated. Companies that have Listing Agents should not have Buyer's Agents. In my opinion, that is the only way the potential conflict of interest can truly be eliminated. How can an agent flip flop with their relationships and not have a conflict arise? A agent can have the same person as a customer, then a client, then a customer.

Anonymous

on

Dual agency is just the tip of the iceberg. I live and work in southern CA, where see Realtors that are forced by their broker to use "In house" Title insurance, in house Escrow and "In house" lender. The State presently allows this and it is NOT fudiciary responsibile. Too many Real Estate brokers are abusing and taking advantage of the clients while not allowing specalist in their field, to enter or solicit the Realtors establisment, for title, escrow, or lending.

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